Octopus AIM VCT PLC : Half-yearly report

Octopus AIM VCT plc Half-Yearly Results 19 October 2011 Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the Half-Yearly results for the six months ended 31 August 2011. These results were approved by the Board of Directors on 19 October 2011. You may shortly view the Half-Yearly Report in full at www.octopusinvestments.com by navigating to Services, Investor Services, Venture Capital Trusts, Octopus AIM VCT. All other statutory information will also be found there. About Octopus AIM VCT PLC Octopus AIM VCT plc (the 'Company' or 'Fund') is a venture capital trust ('VCT') which aims to provide shareholders with attractive tax-free dividends and long- term capital growth through investing in AIM. The investment manager is Octopus Investments Limited ('Octopus' or 'Manager'). The Company was launched as Close AIM VCT PLC in Spring of 1998 and raised £10.1 million from private investors through an issue of Ordinary shares. Between October 2000 and March 2001 a further £20.0 million was raised through an issue of C shares. Furthermore, between 16 March 2004 and final closing on 5 April 2004 the Company raised £3.3 million by way of a D share issue. The C shares were merged and converted into Ordinary shares on 31 May 2004, with C shareholders receiving 1.0765 Ordinary shares for each C share held. A further £15.0m was raised between 6 January 2005 and 8 April 2005 through an issue of New D shares. On 31 May 2008, the Ordinary shares converted into D shares at a conversion ratio of 0.5448 D shares for each Ordinary share. The two classes of shares were combined and renamed Ordinary shares which is now the only class of share capital. On 11 August 2010 the Company acquired the net assets of Octopus Phoenix VCT plc ("the merger"), with previous shareholders of Phoenix obtaining 0.42972672 shares in Octopus AIM VCT plc for every 1 Phoenix share held. In addition to the merger, on the same date your Company announced a fundraising to raise up to £10 million.  The Offer was fully subscribed and closed on 19 April 2011. Financial Summary   Six months to 31 Six months to 31 Year to   August 2011 August 2010 28 February 2011 -------------------------------------------------------------------------------   Net assets (£'000s) 40,067 30,928 38,940   Net (loss) profit after tax (£'000s) (1,487) 452 6,056   Net asset value per share ("NAV") 87.6p 83.7p 94.4p The object of the table below is to show the return of each individual share class, assuming no subsequent corporate actions had occurred, so that the NAV plus cumulative dividends shown at the bottom of the table relates directly to the original investment.  There is now only one share class, that being Ordinary shares. Dividends paid in the period Ordinary shares Ordinary shares Phoenix 'C' Phoenix Ordinary ended 2010/11 D shares 2003/04 C shares 2000/01 1997/98 shares 2005/06 shares 2002/03 ----------------------------------------------------------------------------------------------------------------------- 28 February                                  - 1999 -      -   1.88 -   - 29 February 2000 -   -   -   3.13 -            - 28 February 2001 -   -   -               37.25 -   - 28 February 2002 -   -   2.55 6.50 -   - 28 February 2003 -   -   1.50 3.50 -   - 29 February 2004   -   -   0.50 0.50 -   0.15 28 February 2005 -   0.50 0.50 0.50 -      6.50 28 February 2006 -   2.25 2.31 2.15 -   1.00 28 February 2007 -   3.30 4.52 4.20 1.00 3.35 31 August 2007 -   2.50 2.69 2.50 3.00 6.00 29 February 2008 -   2.50          2.69 2.50 3.00 6.00 31 August 2008 -   2.50 2.69 2.50 2.00 5.00 28 February 2009  -   2.50 * 1.47 * 1.36 * 3.00 5.00 31 August 2009 -   2.50* 1.47* 1.36* 1.35          1.00 28 February 2010 -   2.50* 1.47* 1.36* 1.35* 1.00 31 August 2010 -   -*   -*   -*   2.70* 2.00 28 February 2011 5.00 5.00* 2.93* 2.72* 2.90* 2.15 31 August 2011         2.50 2.50* 1.47* 1.36* 1.45* 1.07 ----------------------------------------------------------------------------------------------------------------------- Cumulative dividends paid 7.50             28.55             28.76             75.28             21.76             40.22 NAV as at 31 August 2011**             92.60             87.60             51.40             47.70             50.80             37.60 ----------------------------------------------------------------------------------------------------------------------- NAV plus cumulative dividends paid***        100.10           116.15             80.16           122.98             72.56             77.82 An interim dividend of 2.5p will be paid on 25 November 2011 to shareholders on the register on 28 October 2011. *Notional dividends adjusting for conversion of Phoenix 'C' shares into Phoenix Ordinary shares, and relevant AIM VCT shares into AIM VCT Ordinary shares. ** NAV, rebased to assume investment at 100p, adjusted for conversion of relevant shares into AIM VCT Ordinary shares at the date of each conversion. Phoenix Ordinary shares adjusted as at the date of the merger. Investment has been assumed at the first allotment of each tax year. ** *NAV, rebased to assume investment at 100p, plus cumulative dividends based on NAV adjusting for conversion, showing the notional return to shareholders based on their original investment share class. Investment has been assumed at the first allotment of each tax year. Notes · The Ordinary shares were first listed on 17 March 1998. · Dividends paid before 5 April 1999 were paid to qualifying shareholders inclusive of the associated tax credit. · The D shares were first listed on 17 March 2004. · The C shares were converted into Ordinary shares on 31 May 2004, in accordance with the conversion factor of 1.0765 Ordinary shares for each C share. · The Ordinary shares were converted into D shares on 31 May 2008, in accordance with the conversion factor of 0.5448 D shares for each Ordinary share. · New D shares issued between 6 January 2005 and 8 April 2005, did not rank for the final dividend. · Phoenix 'C' shares converted into Phoenix Ordinary shares. · On 12 August 2010, Octopus Phoenix VCT plc shares were converted into Octopus AIM VCT plc shares at a ratio of 0.42972672, upon the merger of the two VCTs. · All dividends paid by the Company are free of income tax. It is an HM Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on their dividend voucher and need not disclose any income they receive from a VCT on their tax return. · The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found at www.londonstockexchange.com. Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value, primarily as a result of the initial tax relief which is non-transferable. · The above table excludes the tax benefits investors received upon subscription. Chairman's Statement It is pleasing to report that the top-up offer to raise £10 million was fully subscribed.  As a result, 10,028,704 shares were issued before the closing date of 30 April 2011.  I am also delighted that Marion Sears has agreed to join the Board, effective from 1 October 2011.  Marion has had considerable experience of asset management.  She was a managing director of JP Morgan investment banking and is the senior independent  director of Dunelm Group Plc and Zetar Plc. Performance The review period was dominated by international economic concerns. Our portfolio cannot but be affected by what has been happening in the markets generally. However many smaller companies continued to report good trading results. The Net Asset Value (NAV) declined in the period from 94.4p to 87.6p per share, a total negative return of 4.6% if the 2.5p dividend paid out in the period is added back.  This compares with a fall in the AIM Index of 16.9% and in the Smaller Companies Index excluding investment trusts of 10.4%.  I have often highlighted the imperfection of the AIM index as a benchmark, with the small cap index generally being a better proxy.  The portfolio has outperformed this index as well, helped by the benefit of the cash from the fundraising as well as the lack of liquidity in the smallest companies' shares. This had made shares slower to bounce during the rally of the previous two years, and had left them still looking cheap compared with the rest of the market.  The NAV has remained relatively solid since the period end, despite further falls in all stock market indices, and stood at 87.9p per share at the end of September. Top-up The Board is proposing to offer a top-up into the Fund to raise up to circa £4.0 million. This will provide shareholders and other investors with the opportunity to invest in the Company and benefit from the tax reliefs available to qualifying investors in VCTs. These shares will be issued at a price equal to the most recently published NAV per share, divided by 0.945 to take into account the offer costs of 5.5%. I will write to you with further details in due course. Portfolio It was encouraging to see a flurry of new issues to the market over the summer months, and as a result £4.3 million of new investments were made in the period. The principal new investments were Enteq Upstream, Indeed Online, Escher and MyCelx.  Enteq has a highly experienced management team. It is a cash shell set up to acquire companies which provide specialist products and technologies to make the process of oil and gas extraction much more efficient.  Indeed Online is an internet conveyancing company acting on behalf of both buyers and sellers.  Escher is a provider of software to post offices globally, for both postal and over the counter services.  It has recurring revenues and an impressive client list. MyCelx has a clever technology for removing hydrocarbons from water, and its equipment is being used in the Gulf of Mexico where regulations on waste water from oil wells are becoming more stringent. Strategic Thought changed its name to Active Risk and raised additional capital in which we participated, increasing our holding. There was also some corporate activity in the portfolio, although not as much as a year ago. The cash came in from the bid for System C in May and IS Pharma was acquired by Sinclair Pharma, creating a much larger entity with drug distribution capabilities throughout Europe.  It will continue to be a VCT qualifying investment for two years after the merger.  Praesepe was acquired by Marwyn Management and we now hold Marwyn Management shares.  Towards the period end there was also a cash bid for CBG which had failed to make any headway as an independent company.  Since the period end there has been an announcement of a cash bid for Clarity Commerce Solutions. News from investee companies has, on the whole, been positive.  Among the larger holdings Brooks Macdonald and Craneware both reported results ahead of expectations and continued good growth momentum. We have continued to take some profits in Brooks which remains the biggest holding in the portfolio.  Breedon Aggregates is now profitable and was trading ahead of management expectations at the time of its last figures.  Advanced Computer Software had good figures and the share price has held up well in current markets, and Immunodiagnostics is continuing to roll out its ISYS machines for vitamin D testing.  IDOX, Brady, Animalcare, Staffline and Mattioli Woods have all reported good progress in their businesses. 89.3% of the portfolio is currently invested in qualifying holdings comfortably above the HM Revenue and Customs requirement of 70%. At the end of the period your Company had liquid funds of £10.2 million. Risks and uncertainties The principal risks and uncertainties are set out in Note 6 to the Half Yearly Report on page x. Dividend Your Board continues to strive to maintain an annual dividend of at least 5p per share. A dividend of 2.5p per share was paid to shareholders in July. Your board has approved the payment of an interim dividend of 2.5p per share which will be paid to shareholders on 25 November 2011, to shareholders who are on the register on 28 October 2011. Shares issued and repurchased. It is the Board's policy to try and maintain a discount of net asset value at which the Company's shares stand in the market at not more than 10%. During the period 535,312 shares were purchased in the market. Electronic communications Based on feedback from shareholders, and in order to reduce the cost of print and the impact on the environment, we will be offering shareholders the opportunity to forgo their printed report and account documents, in favour of receiving email or letter notification with details of how to view the documents online. Further details of the options available can be found in the accompanying letter to this report. Outlook Difficult economic conditions continue to prevail.  The euro zone is in crisis, the recovery in the US has yet to show itself and the UK economy is showing no growth.  However, there is a danger that the general feeling of fear caused by these conditions, which has resulted in wild fluctuations in the market, could make matters worse. It is, therefore, heartening that contact which the Management team has had with many companies in the portfolio suggest good trading throughout the rest of the year.  In normal times this should be reflected in share prices.  However at present, times are anything but normal. Although the perceived reluctance of banks to lend did not result in as many investment opportunities as we expected, recently we have seen an increase in companies seeking finance. Although we do have substantial liquidity, the proceeds of the top-up referred to above will ensure we can invest as suitable opportunities arise, which we will do cautiously. Michael Reeve Chairman 19 October 2011 Investment Portfolio The 10 largest qualifying holdings by value in the New Ordinary share portfolio as at 31 August 2011 are shown below: -------------------------------------------------------------------------------- Movement % equity Cost of in Fair held by investment valuation value as all as at 31 as at 31 at 31 % funds August August August equity managed Quoted equity 2011 2011 2011 held by by investments Sector (£'000) (£'000) (£'000) AIM VCT Octopus -------------------------------------------------------------------------------- Brooks Macdonald Financial Group Plc consultants 773 1,020 1,793 1.7% 2.4% Immunodiagnostic Systems Plc Healthcare 528 880 1,408 0.4% 2.6% Breedon Aggregates Ltd Construction 901 450 1,351 1.3% 2.2% EKF Diagnostics Holdings Plc Healthcare 931 412 1,343 2.2% 6.4% Enteq Upstream Oil Services 1,031 227 1,258 6.9% 14.0% Advanced Computer Software Plc Software 596 559 1,155 0.9% 2.2% Idox Plc Software 362 688 1,050 1.4% 3.0% Mattioli Woods Financial Plc consultants 523 484 1,007 2.2% 2.9% Escher Group Holdings Plc Software 1,000 (47) 953 3.5% 6.9% MyCelx Technologies Plc Equities 900 21 921 3.3% 7.6% -------------------------------------------------------------------------------- Total   7,545 4,694 12,239 Other equity investments   23,122 (5,247) 17,875 -------------------------------------------------------------------------------- Total equity investments       30,114 Money market securities   3,867 - 3,867 Cash at bank   6,338 - 6,338 -------------------------------------------------------------------------------- Total investments       40,319 Debtors less creditors       (252) -------------------------------------------------------------------------------- Total net assets       40,067 Responsibility Statement of the Directors in respect of the Half-Yearly Report We confirm that to the best of our knowledge: * the half-yearly financial statements have been prepared in accordance with the statement "Half-Yearly Financial Reports" issued by the UK Accounting Standards Board; * the half-yearly report includes a fair review of the information required by the Financial Services Authority Disclosure and Transparency Rules, being: o   an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements. o   a description of the principal risks and uncertainties for the remaining six months of the year; and o   a description of related party transactions that have taken place in the first six months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so. On behalf of the Board Michael Reeve Chairman 19 October 2011 Income Statement +-----------------------+ |Six months to 31 August| Six months to 31 Year to 28 February  | 2011 | August 2010 2011 | |  |Revenue Capital Total|Revenue Capital Total Revenue Capital Total | |   | £'000 £'000 £'000| £'000 £'000 £'000 £'000 £'000 £'000 -------------+-----------------------+-------------------------------------------   |     | | | Realised gain| | on disposal | | of fixed | | asset | | investments | - 331 331| - 1,338 1,338 - 2,611 2,611 | | Realised | | (loss)/gain | | on disposal | | of current | | asset | | investment | - - -| - - - - - - | |   |      | | | Investment | | holding gains| - (1,542) (1,542)| - (453) (453) - 4,045 4,045 | |   |      | | | Income | 226 - 226| 112 - 112 301 - 301 | |   |      | | | Investment | | management | | fees | (96) (289) (385)| (62) (188) (250) (139) (418) (557) | |   |      | | | Merger costs | - - -| (134) - (134) (134) - (134) | | Other | | expenses | (117) - (117)| (161) - (161) (210) - (210) | |   |      | -------------+-----------------------+------------------------------------------- (Loss)/profit| | on ordinary | | activities | | before tax | 13 (1,500) (1,487)| (245) 697 452 (182) 6,238 6,056 | |   |      | | | Taxation on | | (loss)/profit| | on ordinary | | activities | - - -| - - - - - - | |   |      | -------------+-----------------------+------------------------------------------- (Loss)/profit| | on ordinary | | activities | | after tax | 13 (1,500) (1,487)| (245) 697 452 (182) 6,238 6,056 -------------+-----------------------+------------------------------------------- Earnings per | | share - basic| | and diluted | 0.0p (3.3)p (3.3)p| (0.8)p 2.3p 1.5p (0.5)p 17.7p 17.2p +-----------------------+ * The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies. * All revenue and capital items in the above statement derive from continuing operations. * The accompanying notes are an integral part of the half-yearly report. * The Company has no recognised gains or losses other than those disclosed in the income statement. Reconciliation of Movements in Shareholders' Funds +----------------+ |Six months ended|Six months ended Year to   | 31 August 2011| 31 August 2010 28 February 2011 | |   | £'000| £'000 £'000 -----------------------------+----------------+--------------------------------- Shareholders' funds at start | | of period | 38,940| 23,644 23,644 | | (Loss)/profit on ordinary | | activities after tax | (1,492)| 452 6,056 | | Shares issued upon merger | -| - 6,656 | | Stamp duty upon merger | -| - (29) | | Net assets of Phoenix from | | merger | -| 6,716 | | Shares purchased and | | cancelled | (448)| (58) (801) | | Issue of equity | 4,212| 174 4,995 | | Shares to be issued | -| - 352 | | Dividends paid | (1,145)| - (1,933) -----------------------------+----------------+--------------------------------- Shareholders' funds at end of| | period | 40,067| 30,928 38,940 +----------------+ Balance Sheet +------------------+ | As at 31 August| As at 31 August As at 28 February   | 2011| 2010 2011 | |   | £'000 £'000| £'000 £'000 £'000 £'000 ---------------------+------------------+---------------------------------------   |    | | | Fixed asset | | investments* |   30,114|   21,358   28,049 | | Current assets: |    | | | Money market | | securities* | 3,867  | 8,939   10,655 | | Debtors | 24  | 727   19 | | Cash at bank | 6,338  | 91   475 ---------------------+------------------+---------------------------------------   | 10,229  | 9,757   11,149 | | Creditors: amounts | | falling due within | | one year | (276)  | (187)   (258) ---------------------+------------------+--------------------------------------- Net current assets |   9,953|   9,570   10,891 ---------------------+------------------+---------------------------------------   |    | ---------------------+------------------+--------------------------------------- Net assets |   40,067|   30,928   38,940 ---------------------+------------------+---------------------------------------   |    | | | Called up equity | | share capital | 457  | 370   412 | | Shares to be issued | -  | -   352 | | Share premium account| 15,831  | 8,197   11,317 | | Capital redemption | | reserve | 15,715  | 15,331   15,710 | | Special distributable| | reserve | 24,746  | 24,746   25,194 | | Capital reserve | | gains/(losses) on | | disposal |(16,274)  |(12,939)   (14,465) | | Capital reserve | | holding | | gains/(losses) | (552)  | (4,850)   285 | | Revenue reserve | 144  | 73   135 ---------------------+------------------+--------------------------------------- Total equity | | shareholders' funds |   40,067|   30,928   38,940 ---------------------+------------------+--------------------------------------- Net asset value per | | share |   87.6p|   83.7p   94.4p +------------------+ *Held at fair value through profit & loss The accompanying notes form an integral part of the financial statements. Company No: 03477519 Cash Flow Statement +--------------+ | Six months to| Six months to Year to   |31 August 2011|31 August 2010 28 February 2011 | |   | £'000| £'000 £'000 ---------------------------------+--------------+-------------------------------   |  | | | Net cash outflow from operating | | activities | (268)| (1,158) (546) | |   |  | | | Financial investment : |  | | | Purchase of fixed asset | | investments | (4,312)| (2,275) (6,112) | | Disposal of fixed asset | | investments | 1,036| 4,711 7,572 | |   |  | | | Management of cash equivalent | | resources: |  | | | Purchase of current asset | | investment | (6,513)| (4,447) (27,479) | | Disposal of current asset | | investment | 13,301| 2,240 23,556 ---------------------------------+--------------+------------------------------- Net cash (outflow)/inflow from investing activities 3,244 (929) (3,009) | |   |  | | | Dividends paid | (1,145)| - (1,933) | | Cash received on merger | -| 751 747 | | Stamp duty on merger | -| - (29) | |   |  | | | Financing: |  | | | Proceeds from issue of shares | -| - 4,995 | | Shares to be issued | -| - 352 | | Issue of equity | 4,212| 174 - | | Shares re-purchased | (448)| (58) (801) ---------------------------------+--------------+-------------------------------   | 2,619| 867 3,331 ---------------------------------+--------------+------------------------------- Increase/(decrease) in cash at | | bank | 5,863| (62) 322 +--------------+ Reconciliation of Net Cash Flow to Movement in Net Funds +--------------+ | Six months to| Six months to Year to 28   |31 August 2011| 31 August 2010 February 2011 | |   | £'000| £'000 £'000 -----------------------------+--------------+----------------------------------- Increase/(decrease) in cash | | at bank | 5,863| (62) 322 | | (Decrease)/increase in cash | | equivalents | (6,788)| 2,207 3,923 | | Opening net liquid resources | 11,130| 6,885 6,885 -----------------------------+--------------+----------------------------------- Net cash resources at end of | | period | 10,205| 9,030 11,130 +--------------+ Reconciliation of Profit before Taxation to Cash Flow from Operating Activities +--------------+ | Six months to| Six months to Year to 28 February   |31 August 2011|31 August 2010 2011 | |   | £'000| £'000 £'000 ------------------------------+--------------+---------------------------------- (Loss)/profit on ordinary | | activities before tax | (1,492)| 452 6,056 | | Profit on realisation of| | investments | (331)| (1,338) (2,611) | | Loss/(profit) on valuation of | | investments | 1,542| 453 (4,045) | | (Increase)/decrease in debtors| (5)| (700) 8 | | Increase/(decrease) in | | creditors | 18| (25) 46 ------------------------------+--------------+---------------------------------- Net cash outflow from | | operating activities | (268)| (1,158) (546) +--------------+ Notes to the Half-Yearly Report 1.         Basis of preparation The unaudited interim results which cover the six months to 31 August 2011 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 28 February 2011. 2.         Publication of non-statutory accounts T he unaudited interim results for the six months ended 31 August 2011 do not constitute statutory accounts within the meaning of s.415 of the Companies Act 2006 and have not been delivered to the Registrar of Companies.  The comparative figures for the year ended 28 February 2011 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies.  The independent auditor's report on those financial statements, in accordance with chapter 3 of part 16 of the Companies Act 2006, was unqualified. This half-yearly report has not been reviewed by the Company's auditor. 3.         Earnings per share The earnings per share at 31 August 2011 is calculated on the basis of 45,214,477 (28 February 2011: 35,243,827 and 31 August 2010: 29,862,107) shares, being the weighted average number of shares in issue during the period. There are no potentially dilutive capital instruments in issue and, therefore, no diluted return per share figures are relevant. The basic and diluted earnings per share are therefore identical. 4.         Net asset value per share The calculation of net asset value per share is based on the net assets at 31 August 2011 and on 45,729,724 (28 February 2011: 41,247,611 and 31 August 2010: 36,961,280) shares being the number of shares in issue, excluding shares held in Treasury, at the same date. 5.         Dividends The interim dividend declared of 2.5 pence per Ordinary share will be paid on 25 November 2011 to those shareholders on the register on 28 October 2011. 6.         Risks and uncertainties The Company's assets consist of equity and fixed-rate interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a VCT, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail in the Company's Annual Report and Accounts for the year ended 28 February 2011. The Company's principal risks and uncertainties have not changed materially since the date of that report. 7.         Related Party Transactions Octopus acts as the investment manager of the Company. Under the management agreement, Octopus receives a fee of 2.0 per cent per annum of the net assets of the Company for the investment management services. During the period, the Company incurred management fees of £385,000 (28 February 2011: £557,000 and 31 August 2010: £250,000) payable to Octopus. At the period end there was £Nil (28 February 2011: £Nil and 31 August 2010: £Nil) outstanding to Octopus. 8.         This statement will be made available to all shareholders. Copies are also available from the registered office of the Company at 20 Old Bailey, London, EC4M 7AN, and will also be available to view on the Investment Manager's website at www.octopusinvestments.com. This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Octopus AIM VCT PLC via Thomson Reuters ONE [HUG#1556236]

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